To Be Fair, Cast the Net Broadly : Health reform: Someone will always have to subsidize the very sick and the poor; a fair system would forbid ‘opting out.’

Consider the (hypothetical) case of Jim Brown, a 55-year-old man with diabetes, high blood pressure and one previous stroke. If Jim had health insurance, he would probably be a heavy user of care--people like him use, on average, about $10,000 worth of care a year. There is, of course a good chance that Jim has been turned down by insurers. If so, his average expected use would be about $6,000 in care per year because many experts estimate that the uninsured receive about 60% of what they would receive if they had insurance. This $6,000 is then “cost-shifted” to the insured population through higher charges to other patients if Jim’s care is privately provided, or through taxes if it is publicly provided.

Enter health-insurance reform, with the current wide agreement that this cost-shifting must end and everyone must be covered. Most of the proposed laws would require an insurance company to accept Jim as a customer at the community-rated premium of, let us say, $4,000. If all are covered, then cost-shifting ends, right? Well, no.

With his insurance in hand, Jim now receives $10,000 worth of care. If Jim pays the entire $4,000 annual premium himself, $6,000 will still be “cost-shifted”--in this case to the insurance company’s other customers. If Jim’s income is low, some or all of the $4,000 premium will be subsidized by taxpayers; thus the total amount of “cost-shifting” may actually be greater after reform than before. Jim will get more care but the cost of the increased care is likely to exceed Jim’s contribution to the premium.

It is a fundamental fact of life that the cost of caring for the poor and the very sick must always be shifted--it is impossible for them to pay their own way. None of the reform proposals will end cost-shifting but they do differ in how they would accommodate the shift. For instance, in a single-payer plan financed by a payroll tax the cost would be borne mostly by workers through lower wages. Some of the cost might be borne by consumers through higher prices. The Clinton plan is different. Its complexity makes it difficult to trace completely the path of cost-shifting, but a few generalizations are possible. Some of the burden would fall on healthy workers who do not use much medical care, some on cigarette smokers and some on taxpayers in general.

Both the single-payer and the Clinton plans spread the cost of caring for the poor and the sick broadly. But the shifting gets out of kilter in proposals that would allow large segments of the population to obtain insurance outside a common insurance pool, as, for example, through company self-insurance. Under such plans, companies with young, healthy workers could negotiate with providers for low rates and thus escape bearing their share of the cost-shift. The more this occurs, the greater the burden on those left in the common pool and the greater the incentive to leave the pool. Eventually the system would collapse.

Some plans propose making health insurance “available” to everyone but include no provision for payment. Such “reform” would be a cruel hoax for those who cannot afford the premiums without substantial subsidies. But a subsidy program won’t work unless the burden is shared broadly and equitably by the rest of the population. There are only two ways to achieve broad sharing:

* The subsidies could be financed by a general tax, such as on payroll, income or value-added.

* The population must be compelled to participate in a common insurance pool.

Policy-makers must acknowledge that if they are serious about achieving universal coverage through health-insurance reform, some compulsion will be necessary.